The Fake Threat: Government Default

The head of the International Monetary Fund has warned that a default on the debt of the United States government would create an international economic crisis. The Secretary of the Treasury says the same.

Indeed, the entire establishment of international debt warns that the ever-growing debt of the U.S. government is central to the prosperity of the world. This debt not only cannot be paid off, it must not be paid off. Without this endless expansion of government debt, these highly paid experts assure us, the world will fall back into recession.

Clinton was praised because he balanced the budget, sort of, by counting rising Social Security debt as income. But those days of praise are over. Today, we are told, the United States government must absorb the thrift of the world, or at least absorb the expansion of counterfeit money by the world’s central banks.

A Reuters story in the Australian newspaper sounds the alarm.

Top officials of US and international financial institutions ramped up warnings overnight that failure to raise the US debt ceiling to prevent the world’s largest economy from defaulting would deal a serious blow worldwide.

The warnings from the US Treasury, the head of the International Monetary Fund and central bankers at home and abroad amounted to a shot across the bow of lawmakers on Capitol Hill whose failure to agree on a funding bill has already led to a partial shutdown of the US government.

The Secretary of the Treasury warns of dire consequences if the House does not raise the debt ceiling. The nation will fall into recession.

The US government spends a lot more than it takes in, so not raising the debt limit would leave it unable to pay all its bills, which range from pensions for the elderly to interest on money borrowed from China.

Take a look at how the U.S. government spends money. Notice the percentage spent on paying interest. It’s 6%.

In short, debt maintenance is peripheral in the budget. The federal government can keep paying its bills by cutting defense spending and discretionary spending a few percentage points.

The threat of default is a fake threat. It’s a Halloween goblin to scare moderate House Republicans. The government can and will continue to pay interest to the world’s central banks, including the Federal Reserve.

“The US has a special responsibility”: IMF Managing Director Christine Lagarde says it is imperative for the global economy for the US to raise its debt ceiling.

Why should we listen to the head of the IMF? The IMF uses government-guaranteed money to lend to governments that cannot pay their debts to Western banks. It is a giant funnel of money to make sure Western banks get paid. If you doubt me, read John Perkins’ book, Confessions of an Economic Hit Man.

Default would be worse, however. The Treasury says that if Congress does not raise the statutory debt limit, it will run out of room to borrow by October 17, at which time it will be down to its last $30 billion, which could be exhausted within weeks.

It has been down to its last $30 billion ever since May 17, when the Treasury stopped reporting any increase in the debt. It has been locked in, as if by magic, at $16,699,396,000,000. It has not moved up by one dollar.

The Treasury is obviously cooking the books. Wall Street does not care. No one cares. So, let them keep cooking the books. Since reality in accounting does not matter at the Treasury, why worry about it at this late date? Just keep doing it.

“No one knows with certainty how bad the consequences are if we cross the line,” Treasury Secretary Jack Lew told the Fox Business Network.

So, if no one knows, they all ought to shut up. They should stop telling us about a looming crisis.

Global financial leaders are concerned a US crisis could slam economies across Europe, Asia, Africa and the Americas just as the world is making an uneven and uncertain recovery from the 2007-2009 recession.

US Treasury debt, long deemed risk-free, is the foundation of the global financial system. Assets around the world use US Treasuries as a benchmark for their value.

“It is mission-critical that this be resolved as soon as possible,” IMF chief Christine Lagarde said in a speech. “Failure to raise the debt ceiling … could seriously damage not only the US economy but the entire global economy.”

It’s getting close to Halloween. It’s time for goblins and scary things.

“There is a lot of uncertainty, it makes people very nervous. It creates a lot of, maybe, distrust about government’s ability to actually lead this country,” San Francisco Federal Reserve Bank President John Williams said in San Diego.

Then it is a good thing.

Christian Noyer, a member of the European Central Bank’s Governing Council, said he could not imagine that the United States would default on its debts.

“We’ve got an event that is creating a risk for American growth, a serious risk if it lasts too long … and given the importance of the American economy, a global risk,” he said on BFM Business TV. “I don’t dare imagine that will happen.”

So, the endless expansion of federal debt is the salvation of the world’s economy.

This is Keynesianism. It teaches that the U.S. government must absorb the world’s capital (or at least its recently counterfeited money), so that the world’s economy can grow. If the U.S. government were to balance its budget, thereby freeing up funds to lend to the private sector, this would plunge the world into massive recession.

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22 thoughts on “The Fake Threat: Government Default”

Here we go with the booga-booga from the money junkies: "You and your descendants must continue to be slaves to private central banking forever, or there will be CHAOS! RIOTS! ANARCHY!" Icelanders tossed out the administration and jailed the central bankers that brought their country to the brink of ruin; Hungary has just ordered the IMF out of their country.

Countries that look after the interests of their own populations have succeeded in getting rid of private central banking a la the Federal Reserve, but Americans are not allowed to read about that. Instead, Americans hear about: multi-millionaire professional athletes who take steroids, Meg Ryan's life after Hollywood and the latest runway fashions.

We have to stop calling it "nuts", "crazy, "insane" and "stupid". When a con man rips off a mark, is he "nuts"? Is he "stupid"? No, he is the slickest dickhead in the room. Same with the military industrial complex. Don't assign to stupidity which is likely just a con job.

When Shane can't say anything that sounds remotely logical, he just throws a temper tantrum and spouts off insults.

So the answer to your question is no, Shane does not want to explain why, because he has no clue. North explained why the threat of default is BS, and Shane doesn't like it. As far as Shane is concerned, if he doesn't like something then he has the right to vomit verbal diarrhea.

See, Johnny. Shane's comments are an example of an ad hominem attack. These are commonly used by people who feel emotionally distraught when challenged and find themselves incapable of making a cogent and dispassionate argument.

For those with graphic artist skills, portraying President Obama as Sheriff Bart in Blazing Saddles, grabbing his own collar and holding a gun to his own head and threatening debt default if the Republicans don't rubber stamp his budget might humorously communicate Gary's point of the fake threat.

It is really SIMPLE, STOP SPENDING. Gut ALL federal departments back to the constitutional limits. Outlaw the federal reserve.
And prosecute ANY politician who puts forth ANY bill not constitutionally vetted (BEFORE is is voted into law) for breach of contract and violating their oath of office. ANY law (including lying) broken by a politician is a mandatory barr from public service.

The answer to the debt limit debacle is to STOP SPENDING AND CUT EXPENSES! If you have maxed out your credit card, would you call the card company and ask for more credit? This is synonymous with the process of raising the debt limit. Following the raise, expect Congress to enact more taxes. Is there anything that isn't taxable?

His premiss (which of course is a widely used TP counter point on the subject and nothing original) is the fact that the US spends only(?) 6% of it's budget on debt service… so no biggy right (anyone here paying out 6% of after tax income on debt service… mortgage interest aside since we all need a place to live)!

So, it's no big deal to threaten default on the largest debt pool in the world to extract (i.e. blackmail) politically motivated concessions… I mean, what could possibly go wrong? Oh wait… wouldn't that cause countless mega investment pools to dump US Treasury debt as the uncertainty (thought the TP crowd was terrified of that word?) would no longer meet their risk models… and of course the herd mentality would then take hold creating untold market chaos.

So, what's the likely result of Mr. North's Tea Party echo chamber point… much higher interest on the debt costing tens of billion $ in debt service expense, and permanent damage to the full faith and credit (such as it is) of the world's reserve currency… brilliant!!!!!

Are you Shane? Or his daddy? Does he need you to fight his battles for him?

"His premiss (which of course is a widely used TP counter point on the subject and nothing original) is the fact that the US spends only(?) 6% of it's budget on debt service… so no biggy right (anyone here paying out 6% of after tax income on debt service… mortgage interest aside since we all need a place to live)!"

North's premise, not premiss, is that the Pentagon fat could be cut to get half of the interest payments, and discretionary fat could be cut to get the other half of the interest payments. The first 6% of the budge to be cut does not have to be the interest payments. There is plenty of money from taxes to pay interest, other obligations can easily be cut first…IF the Democrats and Republicans choose to do so.

"So, it's no big deal to threaten default on the largest debt pool in the world to extract (i.e. blackmail) politically motivated concessions… I mean, what could possibly go wrong?"

This is the current position of the Democratic party as well as the Republican party, each trying to threaten default in order to gain politically motivated concessions. As North has pointed out, it is bullshit. No default will happen unless they choose to pay everyone else and stop making their interest payments.

"Oh wait… wouldn't that cause countless mega investment pools to dump US Treasury debt as the uncertainty (thought the TP crowd was terrified of that word?) would no longer meet their risk models… and of course the herd mentality would then take hold creating untold market chaos."

Isn't it funny we have a debt crises and CR all the time. If governments could only spend what the government takes in each year, we wouldn't be having these fights all the time. The average person has to deal with these matters, so why not the government. If we keep spending and borrowing the way we have been, there will come a time when all the money taken in will just pay the interest on the money owed, and then we are down the hole. I am not that smart, but I know this is how it works. And I want to remind everyone Obama voted against the debt ceiling, I think in 2006, when he was a senator and he called it unpatriotic and irresponsible. But I guess he feels as long as he does it, it is ok and acceptable.
How can Rand Paul turn over somewhere around $500,000 last year back to the government. He must have been cutting corners or not wasting the taxpayers money. If one senator can do something like this, look what would happen it they all tightened their belts and maybe Obama should forego all of campaigning and vacations and take one vacation a year like most Americans, and many do not have even that l vacation a year luxory.

I also want to add Obama has the microphone anytime he wants it, so why is he on Air Force I all the time running around the country telling calling people who just want less spending and less government intrusion so many vile names. Getting om the microphone would not cost him a cent, as the liberal media come running.

Any obligation of payment by the USG created by statutory law is automatically trumped by unambiguous language in Article 4 of the14th Amendment, thus there is zero chance of "default" unless the President commits wilful treason:

Section 4.
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.